This past month, the Federal Reserve published a white paper entitled, "The U.S. Housing Market: Current Conditions and Policy Considerations." While they don't try to outline and explain every factor influencing the current housing market, they do paint a fairly comprehensive picture of current conditions. These conditions should be carefully considered by people involved in any aspect of the real estate market--from real estate investing or working as an agent to issuing loans or helping investors find financing--and knowledge of these conditions should play a role in how you work within the market.
Before we talk about your long-term game plan and how to proceed from here, here's a basic summary of the whitepaper:
- Nationwide, housing prices remain about 33% below their peak in 2006. Such a decline is unprecedented since the Great Depression. As a result, more than half of the aggregate home equity that existed in 2006 has been lost.
- More than 12 million homeowners have negative equity in their homes--that's more than 1 in 5. As a result, homeowners have lost financial options--such as refinancing and selling for a profit--that were formerly available to them.
- Mortgage credit conditions have seized up dramatically. Less than half of lenders are currently offering mortgages to borrowers with credit scores under 620. Hence, first-time buyers, who are younger and tend to have lower credit scores, are now much less likely to purchase homes.
- The rental market across the nation has strengthened because many people opt to rent when they can't buy. Rents have increased, and the national vacancy rate on multifamily rental properties has dropped
- Home prices are staying low because of the persistent excess supply of homes on the market, many of which are foreclosures and in bad shape. Until consumer confidence improves and mortgage credit loosens up, the market will continue to be flooded with excess vacant homes.
How do these conditions affect you? If you're interested in real estate investing, now is potentially the best time in your lifespan for securing excellent deals on a wide variety of properties. The prices are low, and you'll most likely be able to get renters for your properties immediately. But one of the biggest questions for investors today is how to finance these properties.
Before the housing market crash, securing a mortgage for a home was relatively easy. Down payment requirements were low, and banks weren't too picky about credit scores. But banks are now very conservative about issuing loans. Where can you get the funds? How can you make real estate investing profitable?
To many, the findings in the Federal Reserve's white paper seem bleak, but those with the presence of mind to look beyond the negativity can find opportunities that can help not only their own bottom lines but also their communities as a whole. Buying a distressed property and improving it revitalizes areas and increases property values.
A key to succeeding in the current market is to look for out-of-the-box methods for financing properties. Instead of immediately turning to banks, look for private money lenders who may be able to get you the funds you need without the banks stricter new guidelines. Look into owner financing, leveraging money from other properties you own, or cashing out IRAs or other investments to purchase a property.
If you read between the lines of the Federal Reserve's whitepaper, you see that there has never been a better time for real estate investing--if you can secure financing. Look for creative ways to finance, and snatch up those properties for your own portfolio and for the good of your community.